In Year Of 8 Elections, India’s Rural Debt, Distress & Death Crisis

Mumbai: Nearly four in ten of 8,007 Indian farmers who committed suicide in 2015 were in debt, compared to two in ten in 2014; more rural households went into debt over 11 years; and the average rural household had borrowed Rs 1.03 lakh, according to an IndiaSpend analysis of government data.

The Bharatiya Janata Party (BJP) lost 16 seats in rural Gujarat–winning less than 40% of such constituencies–as unrest grew in a failing farm economy. As eight states, including the BJP-run, largely agrarian states of Chhattisgarh, Madhya Pradesh (MP) and Rajasthan go to the polls this year, we investigate, in a two-part series, how rural debt, distress and death are growing nationwide.

In an era of increasingly uncertain weather and suicides on farms, attributed to climate change and likely to worsen, the rural economic downturn is likely to be an important issue in the general elections of 2019, and it is unlikely Prime Minister Narendra Modi’s promise that farmers will double their incomes by 2022 will be kept, as IndiaSpendreported in December 2016.

Chhattisgarh, MP and Rajasthan had a collective rural population of 123.6 million in 2011, equivalent to the current population of Mexico, the world’s 11th most populated country. Agricultural growth rates in all three states have declined, Hindustan Timesreported in December 2017, while farmer unrest roiled MP and Rajasthan, as farmers struggling with falling crop prices demanded loan waivers and government guarantees for higher prices.

A key manifestation of the distress is rising rate at which farmers are committing suicides and its association with their inability to repay loans.

One in four farmers committing suicide are in debt

As many as 8,007 Indian farmers committed suicide in 2015, an increase of 41.7% from 5,650 in 2014, and 39% of farmers who died in this manner were in debt, according to 2015 National Crime Records Bureau data, the latest available. In 2014, 20.6% of farmers who killed themselves had borrowed money.

One in three Indian rural households were in debt in 2013, an increase from 26.5% in 2002. The average debt per indebted rural household in 2013 was Rs 1.03 lakh–almost equal to the price of a Royal Enfield Bullet 350 (Rs 1.09 lakh), more than a high end version of the iPhone X (Rs 1.02 lakh) and a Panasonic 55-inch flat screen TV (0.99 lakh). This is an indication of the gulf in urban and rural areas, where 833 million or 68.8% of Indians live, most of them poor.

Institutional agencies, such as commercial banks, regional rural banks, and insurance companies, held 56% of rural debt in 2013, while non-institutional agencies–which include money lenders, family or friends–held the remaining 44%. Professional money-lenders held the maximum share of rural debt (28.2%), revealing that rural households still depend on their local moneylenders for easy credit. Commercial banks, including regional rural banks, held 25.1% of rural debt and cooperative societies and cooperative banks 24.8%.

The largest proportion of debt-related farmer suicides (total: 3,097) came from relatively prosperous states, led by Maharashtra where 1,293 farmers (41.7%) killed themselves in 2015, followed by Karnataka with 946 (30.5%) and Telangana with 632 (20.4%) cases.

Karnataka is one of four major states (others are Chhattisgarh, Madhya Pradesh and Rajasthan) that will go to the polls in 2018; 70% of farmer suicides in Karnataka in 2015 were due to indebtedness.

Indebtedness is also higher among farmers with marginal land holdings; in poorer states, such as Uttar Pradesh, Bihar, West Bengal and Odisha, more than 75% farmers with marginal land holdings (up to 1 hectare/ 2.5 acres) are in debt.

There are two characteristics of rural India’s growing indebtedness: The hold of moneylenders is growing, as are the unpaid loans of banks and other formal sources.

Informal credit easier to obtain, formal loans aren’t getting repaid

More rural households rely on informal credit–from moneylenders, family and friends–than ever before, even as banks and other formal agencies struggled with unpaid loans.

In 2013, 28.6%, of farmers relied on professional moneylenders–the premier sources for rural loans–increasing from 19.6% in 2002, while non-performing assets (NPAs) of banks and other formal institutions lending to farmers rose 20% over a year to 2017.

Rural households continue to depend on moneylenders because formal credit delivery services, while growing, have not reached adequately into rural areas, and because non-institutional sources offer quick money, said a 2013 Reserve Bank of India (RBI) paper.

Borrowing from formal sources implies paperwork, inflexible conditions and collateral, while informal sources are more flexible and often do not ask for collateral, even if money is lent at higher rates of interest: 38% of loans borrowed from informal sources had rates of interest higher than 30%. Informal sources don’t insist on punctual repayments, as banks do.

In 2017, Uttar Pradesh and Maharashtra announced farm loan waivers worth Rs 36,359 crore and Rs 30,000 crore respectively, to discourage rising farmer suicides. However, since only a third of small and marginal farmers have access to institutional credit, as IndiaSpend reported in June 2017, such loan waivers have little effect. Instead, they contribute to NPAs, in particular of public-sector banks.

NPAs of agriculture and allied activities increased by 20%–from Rs 51,964 crore in March 2016 to Rs 62,307 crore in March 2017. However, a clear correlation of debt waivers and NPAs of banks cannot be made, said a 2017 RBI paper. While NPAs from agriculture did rise in 2009, a year after the 2008 agriculture waiver scheme was implemented, between 2011-15 they stagnated between 4-5%.

One reason for rising farmer debt is that farm incomes that have not risen in tandem with good harvests. The average agricultural household in India earned less than Rs 6,500 per month, according to this 2013 National Sample Survey Office survey. That’s roughly the cost of a dinner for two at an urban five-star hotel.

Despite a good harvest in 2016, IndiaSpend reported in June 2017, 70% (62.6 million) of India’s agricultural households pay more than what they earn on average each month, mainly on private healthcare services.

High levels of debt and crop failures are other reasons that contribute to farmer suicides, Mint reported in May 2017.

While high temperatures and low rainfall contributed to suicides during the growing season, the same conditions had no effect on suicides during the off-season, IndiaSpend reported in August 2017, indicating that agricultural production was a direct cause.

Suicide rates in India have doubled since 1980, and suicides due to climate warming account for 6.8% of the overall increase in suicides, Tamma Carleton, lead researcher of a study from the University of California-Berkeley told us.

“Climate change has just begun to unfold, and the warming experienced since 1980 is far less than what is projected to occur in the coming decades,” said Carleton. “Therefore, the number of deaths attributable to warming is likely to rise in the future.”

Update: The story has been updated to reflect that Tamma Carleton, lead researcher of the University of California-Berkeley study, has responded to the criticism to her study.

This is the first of a two-part series. You can read the second part here.

(Nair is an intern with IndiaSpend.)

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